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Working paper

Российский финансовый кризис: почему девальвация рубля сопровождалась дефолтом по государственному долгу?

Shpringel V. K.
Using an original currency crisis model we show that mistakes in monetary and fiscal policy could explain the origins and roots of the Russian financial crisis of 1998. A combination of high interest rates with high sensitivity of inflation rate to the rate of currency depreciation, low duration of debt and low GDP monetization together resulted in exchange rate appreciation and rapid accumulation of domestic-currency debt. When the debt became too high to service, investors started to flee. Protective interest rate hike by the monetary authorities was counterproductive, accelerating the approach of the crisis via the growth in the debt-servicing payments and GDP contraction. The budget restriction of 3% of GDP, used in EC countries, was too loose for Russia in the pre-crisis period.